The 2026-27 Federal Budget proposes sweeping changes to Fringe Benefits Tax (FBT) and salary packaging arrangements, intended to take effect from 1 April 2027. If legislated in their current form, these would be some of the most significant reforms to the system in years, and they sit alongside a broader package of tax relief measures aimed at putting more money in workers’ pockets.

Two areas are squarely in the spotlight: the FBT concession that has made electric vehicle (EV) novated leases so popular, and the longstanding ability to salary package work-related items such as laptops, mobile phones, and other portable electronics.

Here’s a plain-English summary of what’s changing, what it means for your take-home pay, and the steps worth considering before the changes take effect.

At a glance

• The full FBT exemption on eligible electric vehicles would be progressively wound back from 1 April 2027.
• Salary packaging of laptops, mobile phones, tools of trade and other work-related items would lose its FBT-exempt status.
• The “otherwise deductible” rule would be removed for items covered by the new $1,000 instant tax deduction.
• Existing arrangements, including novated leases already in place, are proposed to be protected.
• Alongside the FBT changes, workers would benefit from proposed income tax cuts, a new $1,000 instant work expense deduction, and a $250 Working Australians Tax Offset.
• Both employees and employers should review current arrangements and start planning ahead.

Change 1: Electric vehicles, the end of the full FBT exemption

Since 2022, eligible zero and low-emission vehicles priced under the Luxury Car Tax (LCT) threshold have qualified for a full FBT exemption when financed through a novated lease. That concession has been the engine behind Australia’s surge in EV novated leasing.

Under the proposed changes, the exemption would be scaled back in stages:

The LCT threshold for fuel-efficient vehicles is currently $91,387 and is indexed each year.

What this could mean for your take-home pay

The financial impact could be material. Consider an employee with an $85,000 EV on a novated lease, a vehicle that sits in the $75,000 to LCT threshold band and would therefore move to a 25% exemption from 1 April 2027 if the proposal is legislated as announced:

• Under today’s full exemption, the savings can be in the order of $11,000 per year compared with financing the same vehicle personally.
• Under a 25% exemption, those savings could fall to around $2,500 per year.

That’s roughly $8,500 in additional annual cost for the same vehicle if the changes proceed as proposed, a meaningful difference over the term of a typical lease, and one that would hit this price bracket two years earlier than EVs priced at $75,000 or under.

The good news: existing leases are protected

The government has indicated that existing leases would not be affected by the new rules. Transitional rules would link the FBT treatment of an EV to the start date of the lease.

In practical terms, this means employees who lock in an EV novated lease before 1 April 2027 should keep the current concessional treatment for the life of that lease, a strong reason to act sooner rather than later if an EV has been on your radar.

Change 2: Salary packaging of laptops, phones and work-related expenses

The second major change is tied to the government’s new $1,000 instant tax deduction for work-related expenses (available from the 2026-27 income year, with no receipts required up to that threshold).

From 1 April 2027, the “otherwise deductible” rule would be removed for expenses covered by this new deduction. The FBT exemption that currently allows employees to salary package the following items would no longer apply:

• Laptops, tablets and other portable electronic devices
• Mobile phones
• Computer software
• Protective clothing
• Briefcases
• Tools of trade

Other work-related deductible expenses, including self-education, uniforms, and home office costs, will also lose their “otherwise deductible” status when salary packaged.

The government’s stated aim is to prevent employees from benefiting from both the new $1,000 instant deduction and a separate FBT-free salary packaging arrangement for the same types of expenses. In practice, salary packaging these items would trigger an FBT cost from April 2027, effectively leaving employees to claim them through their personal tax return instead.

One small positive: the existing restriction that limits employees to packaging only one item of a similar type per FBT year is set to be removed for all employers.

The broader tax relief picture

The FBT changes sit alongside a broader package of measures designed to put more money in workers’ pockets:

• Income tax cuts: From 1 July 2026, the 16% tax rate for incomes between $18,201 and $45,000 will drop to 15%, and further to 14% on 1 July 2027.
• $1,000 instant work expense deduction: From the 2026-27 income year, workers can claim up to $1,000 in work-related expenses without needing to keep receipts.
• Working Australians Tax Offset (WATO): A permanent $250 annual tax offset for workers, beginning 1 July 2027.

While these measures reduce the tax burden for many employees, the FBT changes mean that the salary packaging strategies many have relied upon, particularly for devices and EVs, will no longer deliver the same benefits.

What about not-for-profit employees?

NFP employees retain access to the existing $15,900 salary packaging cap for approved living expenses such as rent, mortgage repayments, and school fees, which remains tax-free. This is not affected by the proposed changes and continues to represent a significant benefit for those working in the sector.

However, NFP employees who currently package devices or work-related items should be aware these benefits would be subject to the same restrictions as other employees from 1 April 2027 if the changes proceed as proposed.

What you should be thinking about now

If you’ve been thinking about an EV novated lease, the window up to 31 March 2027 is worth considering. Based on the proposed transitional rules, locking in a lease before the changes take effect would preserve the full FBT exemption for the duration of your agreement.

If you currently salary package work-related items like a laptop or mobile phone, it may be worth reviewing your arrangements and considering how the proposed loss of this concession could affect you from April 2027 onwards. The proposed $1,000 instant deduction would partially offset the change, but may be less valuable depending on your marginal tax rate.

If you’re an employer, it’s worth revisiting your remuneration and salary packaging policies. The changes will affect employee take-home pay outcomes and could influence your overall employee value proposition, particularly for roles where novated leasing and device packaging are key benefits.

We’re here to help

These changes were proposed in the 2026-27 Federal Budget and, if legislated, would take effect from 1 April 2027. Early planning is the best way to put yourself in a position to act, whether or not the measures pass in their current form.

Our team is monitoring developments closely and is ready to talk you through what the changes could mean for your specific circumstances.

Speak to a salary packaging specialist

This article is general information only. It is based on proposed measures announced in the 2026-27 Federal Budget that have not yet been enacted into law, and the final form, timing and detail of those measures may change or may not proceed. It does not take your personal circumstances into account and should not be relied on as tax, legal or financial advice. We recommend obtaining advice tailored to your situation from a qualified professional before making decisions about salary packaging or novated leasing.